Are Your Prepaid Calling Cards Legal Final

Are Your Prepaid Calling Cards Legal?
Giving up past misconceptions (or willful blindness)
and actively manage the regulatory aspect of your
Cards.
Part I.
Understanding the “perfect storm” bringing enforcement
and regulation to Prepaid Calling Cards today - Regulation
and the “Ratchet Effect”
Focus of Current PSC/PUC Enforcement, FTC
Investigations and State Attorney General lawsuits
Part II. Actively Managing the regulated aspects of your Cards.
Recognize, Plan, Adjust, and Update: Reduce Legal
Expenditures by proper Regulatory Compliance.
Managing Compliance Checklists and working with
qualified Consultants
Senior Partner, Maldonado Law Group www.maldonado-group.com
CEO/Regulatory General Counsel of Regulatory Back Office, Inc. www.regbackoffice.com
Copyright 2008 Edward A. Maldonado, Esq.

Copyright 2008 Edward A. Maldonado, Esq. Maldonado Law Group www.maldonado-group.com Regulatory Back Office, Inc. www.regbackoffice.com
1. The traditional thinking of Phone Card Providers, Distributors and Online
Sales was reactive to regulatory requirements.
2. The prepaid phone card business was market volatile so regulatory
compliance was viewed as an aspect to be cleaned-up after provider or a card
had realized profitability in the market.
3. Rules and requirements, to a limited degree, where perceived as still being
clarified by the FCC and State regulatory bodies with no real repercussion,
other than occasional fines.
4. Between 1998 and 2004, FCC and state regulation was also in flux.
5. Consumer Complaints and Disclosure Issues where left to State PSC/PUC to
resolve and promulgate regulation.
Understanding the “perfect storm” bringing administrative
enforcement and regulation to Prepaid Calling Cards today
Regulation and the Ratchet Effect

The Prepaid Calling card industry responded in a number of practices:
1. Placing cards on the market under consumer disclosed rates and charges, and thereafter, toggling
the charges to quickly consume the cards. When returns or complaints massed or created an inquiry
from FCC or a State PSC/PUC the company was closed and a new company opened with the same
distribution.
2. Use of semantic self-termed charges to replace “Call Surcharges” or “Disconnection Fees” although
in function accrued on similar basis.
3. Use of percentage based fees to replace an individual per-call surcharge.
4. Use of standardized disclosures supplied by Printers or taken from other Calling Card Providers
5. Defining oneself as a “Distributor” when if fact they were a Prepaid Calling Card Provider that should
have sought FCC Section 214 Authority and State CPCN certification as an IXC.
•Treating themselves as 100% exempt from Federal regulatory fees if they met USF De Minimus
standards, and not building the costs of such fees into their services.
•Use of Local Access Numbers instead of toll numbers on the cards to avoid the implication of “toll”
or interstate services.
•Avoiding FCC regulation under Section 214 under the proposition their services were VoIP or
Enhanced Prepaid Calling Cards and therefore not under FCC common carrier definitions.
FCC Regulatory

Use of Acronyms of the Prepaid Calling Card Carrier’s name to mask true carrier – usually to avoid
or prolong the cost of CPCN certification in multiple states.
Use of Online Sales to supply cards to distributors without verifying which states the Cards were
ultimately sold, to avoid or prolong the cost of CPCN certification in multiple states.
Use of Private Labels and Distributors without clear disclosure of the Calling Card Provider as the
Last Carrier of Service
The Prepaid Calling card industry responded in a number of practices (Cont.)
State Regulatory
At the state level, the State PSCs and PUCs hit a frustration point as many agencies were limited by
statutory authority to enforce obvious prepaid calling card practice violations within existing regulation as
well as over Prepaid Calling Card Carriers not registered within their state. Agencies and Consumers
lobbied for regulatory authority and new laws were enacted at the state level to address some of
their concerns. Eleven States enacted laws defining prepaid calling card services and strengthened
PSC/PUC enforcement capacity. Those states that did not enact laws referred the Prepaid Calling Card
issue to Attorney Generals under general business practice laws.
In 2005 the FCC and the States began to clarify the requirements on Providers.
At the FCC, these clarification placed VoIP services into the mainstream of USF and support system
reporting and contributions. FCC Form 499 Reporting was now clear for Prepaid Calling Card Carriers as
the last carrier before the consumer. Whole sale and resellers were motivated to pass this liability
downstream to avoid the administrative costs of collecting and remitting regulatory fees.

The Ratchet Effect – the term is used to describe how regulatory agencies look
at regulation and the requirements of regulated industries
* Quote from Regulatory Attorney Michael R. See, Esq. 2006
Fordham Law Review Article (on how Federal Agencies have
failed to comply with the Regulatory Flexibility Act in regard to
small to mid-sized businesses.
1. Federal Compliance of regulatory fees and mandated support mechanisms of the Calling Card Provider
as underlying and last carrier to the consumer without real regard to the effect of it on small to mid-
sized businesses. Resulted in more stringent enforcement or regulatory reporting collection of
regulatory fees: USF, TRS, LNP, NANPA and etc from Providers.
2. FCC De-Tariff Order effectively referred most, if not all, Consumer Issues to the state level for
regulation and enforcement, under state tariffs or general state law. States responded with numerous
initiatives to regulate the immediate consumer problems they faced which resulted in inconsistent
series of rules and requirements as to certification, consumer disclosures, permissible rates and
charges to the consumer, and how to classify charges to the consumer. The effect Providers that
distributed and sold cards in multiple states now needed to maintain multiple and un-unified policies
and regulatory practices for each state.
3. State Disclosure laws took center stage for state enforcement efforts as PUC/PSCs realized that they
lacked legislative authority to address consumer issues and referred matters to State Attorney
Generals. Fueled by Civil Unfair Trade Practice Litigation between consumers and calling card
providers, State Attorney Generals initiated pre-suit Investigations and Civil Consumer Class Action
lawsuits followed.
“Like a ratchet, regulation has the tendency to move in one direction only –
that is, becoming more restrictive.” *
For Prepaid Calling Cards, the Ratchet Effect found substance in three areas:

Focus of Current Regulatory Enforcement Actions, FTC Investigations and
State Attorney General Pre-Suit Investigations & Lawsuits
The FCC Enforcement Bureau:
Survey Results from FCC Enforcement Actions that resulted in forfeitures or Administrative Denial of new FCC licenses
and registrations until past due regulatory fees are current on payment FY 2007 to FY 2008. FCC Daily Digest
1. Failure to file CPNI Certification (the new FCC regulatory “traffic stop”)
2. Failure to obtain Form 499 Filer ID Registrations (service bureau sub-clients)
3. Failure to file FCC Form 499-A and 499Q and pay contributions to:
• Universal Service Fund (USF)
• TRS, LNP, NANPA and FCC Regulatory Fee
4. Informal Complaints to the FCC by Consumers (filed online to FCC)
5. Failure to file Transfers of Control – Sale of Business, Assets or Close of
Business by Section 214 Holders without prior approval and Notice to FCC.
(discovered after Failure to respond to FCC Informal Complaints and File Form 499
after FCC letter of Inquiry)

State Attorney General Pre-Suit Investigations & Lawsuits (Cont.)
State Public Service/Utility Commission Enforcement Actions ( 2007 to 2008.)
Failure to maintain Certificate of Public Necessity & Convenience (CPCN) in
good standing prior to offering services or distributing cards within a state.
• Physical “Hard Cards” that Disclose an unrecognized service provider by the PUC
• Online PINs with Local Access Number for use by Consumers within the State
• Prepaid DIDs with Local Access Numbers sold online or in Card format
• No Tariff or updated tariff on file to review policies & practices associated with the Cards
• Failure to respond to a Formal Complaint by a consumer and/or State PSC/PUC
• Operating after Cancellation of CPCN for failure to file annual reports and contributions
• Marketing Materials that contain rates and fees not found on tariffs previously approved
** FOIA Survey by Regulatory Back Office, Inc. of California, Florida, Georgia, Illinois, New York, New Jersey, Texas 2007-2008

Federal Trade Commission (FTC) Investigations
There are two layers to the recent thrust of FTC and state Attorney General investigations
that have ensued over false advertising and unfair trade practice claims.
1. The practices of calling card companies in what and how they charge consumers: These issues
relate to the billing increments per call, what rates or charges are actually assessed and how
much per call, and whether charges (or surcharges) have been portrayed as taxes and
regulatory fees when they are not. Much of what governs these issues is found more
substantively in state law and regulation as a Certified IXC (CPCN) offering Prepaid
Calling Cards or as a Certified Prepaid Calling card Provider.
2. The clarity of disclosures: what constitutes “clear and conspicuous” disclosures associated
with charges on the prepaid calling cards and found within promotional materials. It is focused
on how effective the provider is communicating its policies, rates and charges applicable to end
user consumers. This includes the accuracy of voice prompt dollar or time balances, the use of
English versus foreign language disclosures, and whether your company has properly identified
governmental taxes and fees or “coined” a catchall term for a variety of other things, including
government taxes and charges. The issue boils down to one of transparency and the
effectiveness of your stated policies, as well as the actual practices of charges related to
cards and service
Federal Enforcement tied into Congressional Bill
H.R. 3402 (Calling Card Consumer Protection Act)

State Attorney General Pre-Suit
Investigations & Lawsuits
As of July 2008, State Attorney
General Investigations were
active or concluding in New
Jersey, Florida, Illinois, Texas,
California. The Federal Trade
Commission has also initiated
investigations in a number of
states in relation to a number of
prepaid calling card providers.
Disclosure laws are now on the
table in New Jersey (effective
8/1/2008), Illinois, Florida, and
California.
Issues raised within Pre-Suit Investigations:
1. Prohibition of Percentage based Fees on the use
of the Card after first use, which gives the
appearance of a tax or regulatory fee when it is
not;
2. Prohibition of Connection Fees, Disconnection
Fees and Surcharges not authorized by State
PUC or under State Tariff and not disclosed to
consumer;
3. Affiliations between Distributors and Providers -
the existence of contracts between subsidiaries
providing service and distributing Cards;
4. Local Access Number used find jurisdiction;
5. Policies related to Online sales to State
consumers and sales connected to telemarketing
6. Mandate to have policies and practice records
(as well as CDRs) that can be audited if
requested.
Result: Learning Curve - State
Attorney Generals are much more
knowledgeable as to the Regulatory
Requirements of Calling Cards & are
using it in enforcement and Lawsuits

Recognize
• Know what is required (from FCC and States) and what must be contributed. Self-Education to
be able to coordinate with other professionals – Regulatory Counsel, Analysts, and Accountants.
• Regulatory Fees are affixed to revenues from the Prepaid Calling Card Provider/Carrier and
should be based upon face value of cards.
• Recent Enforcement Actions have placed new touchstones for jurisdiction and what is required.
Actively Managing the regulated aspects of your Cards.
Recognize, Prepare, Adjust and Update: Reduce Legal Expenditures by proper
Regulatory Compliance.
Prepare
• Develop a Compliance Checklist – and use it.
• Integrate All Costs of Regulatory Compliance into
your cards and overall cost of operation (not just
Cards): Fees, Administrative time, and Record
keeping.
• Integrate Regulatory Counsel in the planning of
cards before launched into the market
• Establish Written Policies (internal) similar to FCC
Manuals to train personnel and use in instances of
Enforcement Actions
• Always work with educated and qualified
Professionals
Adjust and Update
• Compliance Season Is at its height
between January 1 and September 30.
Make updates regularly and during off-
season times to maximize time and costs.
• Maintain centralized record keeping of
corporate information, revenue data,
Calling Card charges for easier filing and
response to Administrative Inquiries.

Federal Communications Commission (FCC)
 FCC Section 214 Authority (Granted and updated with correct Address and corporate information)
 Annual Customer Proprietary Number Information Certification and Policies (CPNI)
 499 Filer ID Registration
 Filing of FCC Form 499-A.
Due April 1st of every year with 499-Q reports due every March, May, August, and November.
Requires pre-registration of Carrier with the FCC and thereafter Quarterly 499-Q reporting to certify status
as direct contributor, or that, provider qualifies as "de minimus" indirect contributor. Contributions assessed
From the Form 499: USF – TRS – LNP – NANPA - FCC Regulatory Fee
 FCC Caller Party Number (CPN) Reports -FCC Dial Around Compensation Reporting.
State Certification of Prepaid Calling Cards :
 Certification for Public Necessity & Convenience (CPCN as IXC), vary from state-to-state.
This certification must be done prior to entering the cards into markets within that particular state.
Providers are required to file a tariff defining the terms and conditions under which they will sell these
services to consumers in that state. Federal regulation supports the state processes under CRF
42.11 (a) which requires federally de-tariffed non-dominant carriers who provide international service to
make available to the public information concerning their existing rates, terms and conditions for all of its
international and interstate services.
 Update of Tariffs to include new card pricing, remove discontinued cards, & update policies.
 Renewal of Registered Agents
 Renewal of State Certificates of Authority to Do Business
 Filing of State and Federal Sales Taxes (Resale Certificates or Returns)
 Annual State Revenue Reporting and Resale Certificate Renewals.
 Annual State Corporate Renewals of certificates to due business and annual corporate reports
 Regulatory Annual Assessment Reports for CPCN as IXC;
 Quarterly Reports for State USF Worksheets, Telecommunications Assessment Reports,
Statement of Gross Intrastate Operating Revenues, Emergency Telephone Users Surcharge Returns,
State Telephone Surcharge Transmittal Reports, Emergency Telephone Users Surcharge Returns and
others similar State Utility Commission reports and returns.
Sample Checklist with General Considerations for Card Carrier Compliance

Sample Checklist with General Considerations for Card Compliance
USF: FCC Form 499-A and 499Q
 Have you been passed USF Certificates to accept contribution liability from Carriers?
 Do you have a complete list of those carriers?
 Have you Accounted for USF in the Face Value of the Card?
 Are you accounting for TRS, LNP, NANPA, and the FCC Regulatory Fee within your revenues?
 How are these federal fees disclosed to Consumers on Cards and Promotional Materials?
State CPCN and Card Compliance
 Are your State CPCN(s) as an IXC active and current? If not – why?
 Do you incorporate the full name of your Prepaid Carrier or yourself on the card &
promotional materials?
 How Current is your Tariff (more than 6 months old or revisions more than 5
products)?
 Are your rates and charges “clear and conspicuous” on cards and POS materials?
 Where do sell (review of Local Access numbers and origination traffic)?
 How solid is your record keeping on the cards, posters, rate changes, and operations?
 When was the last review of your Cards?

CEO/Regulatory General Counsel of Regulatory Back Office, Inc. www.regbackoffice.com
Copyright 2008 Edward A. Maldonado, Esq.
Are Your Prepaid Calling Cards Legal?
August 19th
2008 Prepaid Press Expo, Las Vegas Nevada
Presented by Edward A. Maldonado, Esq.
CEO/Regulatory General Counsel of Regulatory Back Office, Inc.
www.regbackoffice.com

Are Your Prepaid Calling Cards Legal Final

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